The 2023 Budget was under immense pressure - first, considering that it’s the current government’s last full budget before the 2024 general election, and second, because it was faced with the tough task of steering the country through an expected global recession.

Whether it’s lived up to the expectations is a conclusion that can only be made once we see the recommendations in action - but here’s what I think for now.

For starters, startups - FinTech in particular - were placed front and center this year. The FM announced an Agriculture Accelerator Fund to encourage agri-startups working on challenges India’s farmers face. It will also foster modern technologies to improve agricultural productivity and profitability.

This is an especially significant move, considering that over 60% of India’s workforce is employed in horticulture and agri-based businesses. Yet, they face challenges related to supply chains, unpredictable seasonal patterns, and market monopolies. Technology could be a panacea for most - helping the industry save approximately USD 2 bn each year.

Digital public infrastructure for agriculture is also set to be built as an open source, open standard, and interoperable public good, which will offer relevant information services for crop estimation, market intelligence, and support to agri-tech startups.

We’ve written a fair bit about agri-tech. In this piece , we cover how solutions that monitor small farm soil health, forecast weather, and analyse potential risks can aid farmers with improved decision-making and improve their overall yield. 

The budget also proposed a National Data Governance policy that will promote startup innovation through access to anonymized data. It's good to see the government prioritizing a new data sharing policy! It should go a long way in allaying the fears Indians have about how and where their data is being used. This will further improve access to services, help bring new products to market and overall make the entire data economy much stronger if the frameworks and guidelines are business-friendly while keeping customer privacy concerns in mind.

Further, in a move to foster entrepreneurship and business growth, more than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalised.

In addition, the date of incorporation for income tax benefits to startups has been extended from 31.03.23 to 31.3.24. The carryforward of losses on change of shareholding of startups has also been extended from seven years of incorporation to ten years.

Unfortunately, its caveat will limit its impact. Only startups with a turnover less than INR 100 cr in any of the previous financial years are eligible - i.e. l ess than 1% of the DPIIT-registered startups (According to Siddarth Pai, founding partner of early-stage investment firm 3one4 Capital). Startup founders were also looking forward to the incentivisation of ESOPs with simpler tax structures, but were left disappointed. 

So while the intention is honourable, this particular measure feels piecemeal at best.

However, FinTechs in particular are set to benefit from the proposed simplification of the KYC process. It will move from a one size fits all to a risk-based approach. This will also encourage financial regulators to have a KYC system fully amenable to meet the needs of the FM mentioned; India is now the third largest ecosystem for start-ups globally - and I hope these measures will put the country on the fast track to the number 1 spot.

We’ve talked at great length about the role of MSMEs in India’s economy - despite which they remain chronically credit-starved. The government had launched the Emergency Credit Line Guarantee Scheme (ECLGS) to help the sector tide over the pandemic, and extended the same last year. 

This year, the budget includes an INR 9000 cr infusion into the corpus - and the revamped scheme is meant to take effect from April 2023. It will enable additional collateral-free guaranteed credit of INR 2 lakh crore and reduce the cost of credit by about 1%.

The ECLGS has been a boon to credit-starved businesses. Since its inception, the scheme has saved around 15 million jobs and stopped 14% of outstanding MSME loans from turning into non-performing assets.

Considering its success, experts have recommended that the best practices from the ECLGS be incorporated into the Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE).

The formation of the National Financial Information registry and Digilocker for MSMEs too is a massive step for the credit underserved and is set to improve credit flow and promote financial inclusion.

However, Digilocker does need to be marketed well enough and incentivized so that businesses use it to avail credit. Currently, 145 million Indians use Digilocker - but when it’s put into the larger context, that’s less than 15% of the country’s population.

I’d say the first budget of the so-called ‘Amrit Kaal’ is off on the right foot - but it didn’t quite go all the way in terms of what it could have done for India’s startup, and more particularly - the FinTech ecosystem. 

One hopes that the government's march towards innovation and clearing roadblocks continues throughout the financial year.